Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Chapter 20, Problem 12P
a.
Summary Introduction
To calculate: The mean, standard deviation and coefficient of variation for both investments made by General Meters, that is, with firm A and with Firm B.
Introduction:
Mean:
It is the value estimated or anticipated to be earned in the future from an investment. It is computed by adding up the values obtained after multiplying each outcome with its probability.
Standard deviation (S.D):
A statistical tool that helps measure the deviation or volatility of an investment is termed as standard deviation. It is the square root of variance.
Coefficient of variation ( CoV ):
It is the ratio of SD (standard deviation) to the mean that shows the extent of variability of data in relation to the mean of the population.
b.
Summary Introduction
To determine : The alternative that brings a higher valuation,assuming that the investors are risk averse.
Introduction:
Merger:
An agreement between two existing companies that combines them to form a single company is termed as a merger. This is done for the expansion of business, share in the market, and value of shareholders.
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Students have asked these similar questions
Wolseley manufacturing Co. invests in a group of risky projects, which increases the unsystematic risk of the firm, but does not change the systematic risk of the firm. All else the same, the expected risk premium on its common stock is most likely to: Select one: a. Increase, because the difference between the expected return on the firm's stock and the risk-free rate will widen. b. Increase or decrease, depending on the internal rate of return of the new projects. c. Decrease, because the difference between the expected return on the firm's stock and the risk-free rate will widen. d. Decrease, because the difference between the expected return on the firm's stock and the risk-free rate will narrow. e. Remain unchanged, because the level of systematic risk is unchanged.
Which statement below is incorrect?
Select one:
A. Compared to interview, survey is more suitable to ask standardised questions.
B. If a firm has more intangible assets, according to the trade-off theory, it is more likely to have a higher leverage.
C. If a firm is more profitable, according to the pecking order theory, it should use less debt for financing.
D. The CAPM model implies that a stock with a higher beta has a higher return on average.
From the sentences below, choose the one that DOES NOT fit in the concept of diversification. *
An investor should investment her/his money in different types of securites because by doing so she/he will be able to create a compensation effect in which the less good performance of some investments can be compensated by the good performance of other investments.
A portfolio constructed of different kinds of investments will, on average, have higher returns and a lower risk than any individual investment found within the portfolio.
A very well diversified portfolio should be composed by different types of securities, from different sectors and from different geographical locations.
Do not put all your eggs in one basket.
In order to have the maximum return, an investor should invest all her/his money in the top 5 best stocks of the market.
Chapter 20 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
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